It said ‘still-rising unemployment is the most pressing challenge’ for Europe.

The OECD accused eurozone leaders of being ‘behind the curve’ throughout the crisis and warned ‘unemployment and social tensions are rising’.

Pier Carlo Padoan, the group’s chief economist, called on the European Central Bank to unleash a major programme of quantitative easing to drag the single currency bloc out of recession. ‘Europe is in a dire situation,’ he said.

With countries struggling to balance the books, the EC granted France, Spain, Poland and Slovenia an extra two years to cut their deficits below 3 per cent. The Netherlands and Portugal won 12 month extensions.

Barroso said: ‘Now is the time to step up the fundamental economic reforms that will deliver growth and jobs, which our citizens, especially our young people, anxiously expect.’

Fears are mounting that Europe faces a lost decade of economic misery. Pimco, the world’s biggest bond trader, warned that the eurozone faces ‘zombification’ over the next few years with many economies staving off collapse but unable to grow.

‘Weak growth means that political and social tensions will continue to build,’ said Andrew Balls, who leads Pimco’s investment team and is brother of shadow chancellor Ed Balls.

He said the eurozone’s four largest economies – Germany, France, Italy and Spain – were likely to bind themselves into an ever closer union.

‘However, it is not clear that all smaller countries will be either welcome or willing to take part,’ he added. ‘There remains a significant risk that some of these countries may exit the eurozone.’